Caroline Farr is manager of a production department of Helling Company. Her department makes one product; the following information for her department was accumulated for 2012:

Static Budget Actual Results

Number of units 100,000 97,000

Direct materials cost$800,000$792,000

Direct labor cost$400,000$380,000

Variable manufacturing overhead$200,000 $199,000

Fixed manufacturing overhead$290,000$292,000

Total $1,690,000$1,663,000

Required:

a) A a flexible budget for the department's actual level of activity, 97,000 units.

b) Use the flexible budget to evaluate Ms. Farr's performance.

c) Why does the budget not include sales revenue and net income?